310: 7 Financial Mistakes to Avoid in Divorce (And How to Protect Your Wealth)

Hilary Hendershott:

[00:00:45] Hilary Hendershott: Divorce isn’t just the end of a relationship or the beginning of a new chapter in your personal life, it’s also the unwinding of a financial partnership and a reorganizing of your entire financial ecosystem. And the decisions you make during this process can affect your financial stability for decades, for better or for worse.

[00:01:03] Today, I’m gonna walk you through seven practical tips. They’re actually more like guiding principles that we use with clients to help them navigate divorce thoughtfully and avoid costly mistakes. Principle number one: take it slow. Don’t make permanent financial decisions while you’re emotionally activated.

[00:01:22] Divorce is emotional. That’s unavoidable. What is avoidable is making irreversible financial decisions while you’re stressed, angry, or afraid. During divorce, people are often under pressure to move quickly, and that’s when reactionary decisions tend to happen. If you’re not careful, you can make moves that are either designed to put the screws to your soon-to-be ex or maybe just a little too rash and not thoroughly thought through.

[00:01:48] These are moves that can feel justified in the moment, but you might regret them later on. Before you move or spend money, close accounts, or take on a new lease or new debt, pause. If a decision can’t be undone, don’t make it while emotions are high. Write it down. Sleep on it. Maybe review it with a professional before you act. I think you’ll be glad you did.

[00:02:08] Principle number two, when it comes to separating assets, the details matter. The truth is, in divorce, financial responsibility is not based on what feels fair. It’s governed by state law, how accounts are titled, whether assets are held jointly or individually, income levels, childcare costs, and whether a prenup or postnup is in place.

[00:02:30] You’re not expected to know all of these rules on your own, but you are responsible for understanding how they apply to your situation and for working with professionals who can explain them clearly before decisions are finalized. A practical first step is to make a simple list of every asset and every debt, any real estate owned, bank and investment accounts, credit cards and loans, mortgages and lines of credit, businesses you have ownership in, assets like jewelry, fine art, and collectibles.

[00:03:04] If this applies, note whose name is on the account, whether it’s held individually as sole and separate property, jointly, or in community property. Finally, note whether you believe any pre or postnup agreements apply to this asset. So much of how assets will be divided and how any post-divorce support is calculated is a function of your state’s divorce laws, so you do need a good attorney or mediator who’s familiar with those state laws.

[00:03:32] These details shape how responsibility is assigned during the divorce process, including how assets may be divided, how debts are handled, how support is calculated, and how your credit could be affected. Getting this clarity early helps you ask better questions, avoid assumptions, and reduce unpleasant surprises as negotiations move forward.

[00:03:53] Principle number three, don’t agree to anything until you understand its implications on your financial life. During mediation or settlement discussions, you may be asked to make decisions about the marital home, retirement accounts, investments, or business interests. Before agreeing to anything, make sure you can clearly answer three questions.

[00:04:13] What is it worth today? Is it taxable now or later? And what decision does this lock in long term? If you can’t answer those questions, pause the discussion. You don’t have enough information yet. For example, the marital home can’t simply be divided fifty-fifty based on today’s value. When that home is sold, potentially years down the road, there may be a significant tax bill attached to it, which can materially change what each person actually walks away with.

[00:04:42] Some assets are relatively straightforward to divide. Others, like retirement accounts, stock, real estate, or business interests are not. This is where a financial professional can work alongside your attorney or mediator to help you understand the financial and tax consequences of these kinds of decisions.

[00:05:00] The goal is not speed. It’s making decisions you can stand behind years from now. Principle number four, equitable doesn’t mean equal because taxes matter. One of the most common and costly mistakes I see in divorce is assuming that equal means fair. A dollar is not always a dollar. Money in a retirement account is not the same as money in cash, and assets that look equal on paper can have very different after-tax values once they’re actually used.

[00:05:29] This comes up frequently with homes, businesses, retirement accounts, stock, and other appreciated assets. A settlement may look balanced at the time of divorce, but years later, when an asset is sold or distributions begin, taxes can materially change what each person actually walks away with. An equitable division considers after-tax value, not just account balances.

[00:05:51] If taxes aren’t a part of the conversation, the analysis is incomplete, and one spouse can unintentionally bear a much larger share of the tax burden down the road.

[00:06:03] Principle number five, gather your financial documents early. If divorce is even a possibility, preparation matters, and waiting until things feel urgent often makes the process more stressful and more expensive.

[00:06:15] Start gathering key financial documents, bank and investment statements, retirement account records, tax returns from the past three to five years, loan, debt, and insurance documents, life insurance policies, and statements for insurance products like annuities, whole life, or term life insurance. Make copies and store them securely.

[00:06:37] If needed, gather information carefully and discreetly. In divorce, information is power, not in an adversarial sense, but because clarity reduces confusion and limits last-minute pressure. You’ll need this information for the lawyers, mediators, or for the courts to do their job. Having it organized early puts you in a stronger position, and it helps conversations move more efficiently and avoids unnecessary delays later in the process.

[00:07:04] Principle number six is about getting the right advice, and it’s not just building the right team, but also limiting outside advice. During divorce, advice comes from everywhere: friends, family, coworkers, and people who genuinely do want to help. The challenge is that their experiences are not your financial situation.

[00:07:23] Divorce laws vary by state, and outcomes depend heavily on how assets are structured, taxed, and negotiated. What worked for someone else might create unintended consequences for you. A practical rule of thumb is this: take advice only from professionals who understand your full financial picture and the legal framework governing your divorce.

[00:07:45] In simpler situations, self-help resources may be sufficient, but if you have significant assets, business ownership, stock compensation, or complex investments, professional guidance isn’t a luxury, it’s risk management and big mistake insurance. Limit the noise. Clear decisions come from informed, coordinated advice, not crowdsourced opinions Principle number seven, focus on stability after the divorce is final.

[00:08:14] Once assets are divided and the legal process is complete, your priority shifts from negotiating the next phase to stability. Focus on your monthly cash flow. Know what’s coming in, what’s going out, and what’s now solely your responsibility. From there, automate your savings wherever possible, and make sure you’re rebuilding retirement assets in your own name.

[00:08:34] This isn’t about rebuilding everything at once or trying to catch up immediately. It’s about creating a steady, realistic plan that supports your current life and restores a sense of control. With clear information and consistent actions, most people move from uncertainty to confidence, and that confidence is the foundation for long-term financial security and the next chapter of your life.

[00:08:59] Divorce is one of the most financially complex transitions many people will ever navigate, and while it can feel overwhelming, it doesn’t have to define your financial future. The goal throughout this process isn’t to rush, react, or win in the short term. It’s to make thoughtful decisions with clear information that support your long-term stability and independence.

[00:09:21] With the right guidance, divorce can become a turning point, an opportunity to build clarity, confidence, and a financial plan that truly supports the life you’re stepping into and creating next. Choose professionals who help you slow things down, understand your options, and move forward thoughtfully, not from pressure or fear.

[00:09:42] As a wealth management firm, we typically begin advisory relationships before a divorce is initiated or once a divorce has been finalized. That said, we would be honored to support you in the next chapter that follows. Many clients find that the period after a divorce is an important opportunity to rebuild with clarity, confidence, and intention, and we might be the right team to help carry your wealth forward into the life you’re now creating.

[00:10:08] If you’re thinking about your next financial chapter and want a partner who looks at the full picture, not just your investments, we’d love to connect. We’re a fee-only fiduciary team focused on after-tax outcomes and long-term planning, helping our clients keep more of what they earn so their money can support the life they’re building.

[00:10:27] If that sounds like the kind of guidance you’re looking for, you can schedule a complimentary conversation with one of my lead advisors by visiting hendershottwealth.com/contact to see if our approach is the right fit for you.